Unfortunately, the market decided not to cooperate, and Goldfarb didn't quite make it. Not only did he have to concern himself with his own clients' reactions to lost principal, but also the reactions of his prospective CPA firm clients. "The clients of the accounting firm didn't want to have anything to do with us because they were frozen in fear, as were some of the partners. The partners we had negotiated the merger with were still comfortable with our relationship, but the other partners needed a lot of personal interaction in order to offer up their clients to us."
This is where the story ties back into our main theme, but with an ironic twist. Reports Goldfarb, "The CPAs didn't want us to worry about the financial planning, an approach I've seen before with accounting firms. Yet, what they needed to understand was that we believed it necessary to do comprehensive planning and money management together." What Goldfarb and his group finally did was to bring education to bear on the problem, education not only for the accounting firm's clients, but for the partners, too. "By way of seminars, we tried to build the clients' and partners' trust in our services, discussing planning issues such as 529 plans, long-term care solutions, etc. We started to get some more interest, but it took a while to build their comfort level. Now, in this, our third year, we're on target to hit our $100 million-under-management goal," he adds.
Ultimately, it was Goldfarb's emphasis on financial planning as a context for money management that allowed him to preserve the deal he'd structured, gain the trust he needed from all parties, and achieve his goals.
"The CPA firm was much like many of our clients-focused on the easy money," Goldfarb says. "It's so tempting to look at the profit and loss statement of a comprehensive planning and money management operation and say, 'It's clear that we've got two divisions, financial planning and money management, and the first has a very narrow profit margin while the second a very generous one. The solution is simple: jettison the planning and emphasize the money management.'" But as savvy advisors know, these services aren't separated as easily in reality as they are in one's accounting ledger. It might be possible to distinguish them on paper, but they are entirely co-dependent in the real world. The actual service and its inevitable profit margin is the consolidation of the two divisions.
The epilogue to Goldfarb's story is that his seminars did the job. He says, "The accounting firm 'gets' it now. They understand the importance of the planning element in what we do." Not only has he gone on to new ventures within the firm, most notably creating its own insurance agency, but he also introduced a discounted planning service to the 22 partners of the CPA firm. "Three took us up on it. We did planning for them, and now they are our greatest allies within the company."
Looking back at the 2000-2002 market, and all of the changes it has forced on the financial services industry, it's tempting to say that all financial advisors have struggled equally. But is that really true? It seems quite possible that broker-dealer reps have struggled even harder to survive than independent RIAs, particularly in the wirehouse sector, where gathering assets is the key to compensation and financial planning is sometimes an afterthought or a loss leader.
From its 2003 Annual Salary Survey, in which the vast majority of respondents describe themselves as "stockbrokers," "reps" or "financial advisors," Registered Rep magazine reported in its June 2003 issue that assets under management for this respondent group fell 41% in 2002 over 2001, accompanied by a 20% drop in reps' gross production. These statistics bolster the argument that clients tied to their advisor solely by investment performance expectations had little reason to stick around when the markets got ugly.
Like some CPA firms new to financial planning, the wirehouses and other large institutions are attracted to the quick profits in managing money. Yet, anecdotally at least, it appears that those clients who invested within a strong financial planning framework-something much more likely to have occurred on the independent side of retail financial services-stayed and, with their advisors' help, sought to understand how the market setback would affect their long-term financial prospects. Reinforced by the 2000-2002 markets, professionals learned once again that high return is generally accompanied by high risk, and money management without financial planning is a shortsighted business model.
David J. Drucker, MBA, CFP ([email protected]), a fee-only financial advisor since 1981, is editor of the Virtual Office News monthly newsletter, and co-author of the book Virtual Office Tools for a High-Margin Practice (Bloomberg Press, 2002), both available at www.virtualofficetools.net.